The optimal policy rule under rational expectations and multiplier uncertainty |
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Authors: | Douglas W Mitchell |
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Institution: | Department of Economics, University of Texas at Austin, Austin Texas, USA |
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Abstract: | This paper shows the role of macro policy under multiplier uncertainty when expectations are rational and the supply structure is affected by price level variance. Policy less is a function of price level variance and possibly of the expected price level. If the letter argument is omitted from the less function, optimal policy simply minimizes the horizontal variance of the aggregate demand curve. If it is not omitted, the level of policy depends on the responsiveness of the supply structure to price level variance, and there may be multiple local policy optima. |
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Keywords: | Address reprint requests to Professor Douglas W Mitchell Department of Economics University of Texas at Austin Austin Texas 78712 USA |
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